To the surprise of many, including me, Sprint Nextel Corporation (NYSE:S) significantly upped its bid to buy the remaining stake it does not own in Clearwire Corporation (NASDAQ:CLWR). Still, this was not enough for some Clearwire shareholders, which left me scratching my head.
“What do these shareholders in the nearly bankrupt wireless carrier want? Better yet, why are they so determined to scuttle Sprint’s attempts to outright own all of Clearwire?”
Look no further than letters written on behalf of a major opponent of the Sprint Nextel Corporation (NYSE:S)-Clearwire Corporation (NASDAQ:CLWR) deal to get some answers. That opponent is Crest Financial, which owns about 8% of Class A shares in Clearwire.
Fluid situation
Before getting into what I found in these letters, let’s look at what’s happened since I last posted that Clearwire should turn down Sprint’s original offer.
Sprint Nextel Corporation (NYSE:S) is now offering $3.40 a share for the nearly 50% stake in Clearwire Corporation (NASDAQ:CLWR) that it does not already own. That is 14% higher than Sprint’s offer in December of $2.97 a share. That was valued at $2.2 billion. This new offer is valued at roughly $2.5 billion. On Wednesday, Clearwire’s board of directors signed off on Sprint’s latest offer. Shareholders will vote on May 31.
On Wednesday, DISH Network Corp. (NASDAQ:DISH) threw a monkey wrench in to Sprint Nextel Corporation (NYSE:S)’s shareholders getting to vote on SoftBank’s offer. The satellite provider has rolled out an advertising campaign suggesting the Spring-SoftBank deal could threaten U.S. national security, according to Reuters, which summed up the campaign as a way to “sway lawmakers and win support for its rival offer.”
Revelation of this stunt by DISH Network Corp. (NASDAQ:DISH) came just one day after its chief executive, Charlie Ergen, said in statement, “We look forward to engaging in full due diligence and continued discussions with Sprint…” This was in response to SoftBank granting Sprint a waiver to talk to DISH.
What’s at stake
As the parties bicker over Clearwire Corporation (NASDAQ:CLWR)’s value, and who should buy Sprint Nextel Corporation (NYSE:S), the main goal of all of this is Clearwire’s spectrum. In a recent post, I pointed out how valuable spectrum is to players in the wireless space. For Sprint, SoftBank’s offer hinges on it locking up the remaining stake in Clearwire, and therefore its spectrum. It’s an entirely different issue for DISH Network Corp. (NASDAQ:DISH), which already has a considerable amount of spectrum. However, it has no network to use it on, rendering the valuable source nearly useless.
Shareholders beware…of both sides
The noisiest dissident is by far Crest Financial. When it first started to complain about Sprint Nextel Corporation (NYSE:S)’s offer, it was understandable considering Sprint’s offer was lower than DISH Network Corp. (NASDAQ:DISH)’s. The letter I mentioned earlier that was sent to shareholders by Crest talks of $240 million in convertible debt that Crest has offered to provide Clearwire Corporation (NASDAQ:CLWR). While it says its terms for Clearwire are better than Sprint’s financing of $80 million a month, it behooves shareholders to carefully consider the financial gain Crest will enjoy if Sprint’s offer is shot down.
Also giving me pause is Clearwire Corporation (NASDAQ:CLWR)’s board getting behind Sprint Nextel Corporation (NYSE:S)’s latest offer. The issue is that it also supported the first, lower offering. The logic it is giving to support both is the same — it is in the best interest of shareholders. It’s interesting that it was willing to accept the first offer, making me think that desperation is ruling its recommendation.
Conclusion
Sure, the opponents of the Sprint-Clearwire merger believe that Sprint’s latest offer still does not adequately address the value of Clearwire Corporation (NASDAQ:CLWR)’s greatest asset — its spectrum. Clearwire is hanging on by a thread, possibly needing at least $2 billion to stay afloat through the rest of the year. Shareholders could be putting their own investments at risk if they follow the recommendation of Crest. It’s pleading with shareholders to wait in case an even better offer comes along. The question then becomes, “What if it doesn’t?”
Tedra DeSue has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article What the Major Opponent of the Sprint-Clearwire Merger May Really Be Up To originally appeared on Fool.com.
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